Film investments and crippling tax bills

16 April 2018

So called ‘Tax Avoidance Schemes’ and Premier League footballers have once again made press headlines following reports that 129 top level players are facing enormous tax bills due to their investments in film schemes in the early 2000s. But is the demonising fair?

Tony Blair’s Labour government initially created tax reliefs to encourage high net worth individuals to invest in the UK film industry and help boost production.

With their investments leveraged by bank loans, investors into ‘sale and leaseback’ schemes purchased a finished film and leased it back to the producer to market in the usual manner.

The idea was that the investor received a significant tax reduction at the outset due to relief on their investment, and then lease payments received from the producer would generate income over the next 15 years in order to repay the loans.

What is often overlooked is that these schemes were not created to ‘avoid’ tax, they merely delayed it. The profits that were generated over the following years repaid the loan but also generated a tax liability for the investor that was intended to balance out the initial relief.

HMRC have sought to unwind these schemes in recent years; in many cases denying the initial tax relief on investment, but at the same time still collecting tax on the profits that follow down the line.

This has caused thousands of investors, not just the sports stars who make the news, facing financial ruin due to tax bills that far outweigh what they ever invested in the first place.

HMRC’s crusade against film investment schemes has left a sour taste for many, given that they were government backed and the underlying structure was explicitly approved by HMRC. However, as with many things, their undoing was the pushing of boundaries by a minority of scheme operators and advisers, and in turn HMRC tarring all investments with the same brush.

Film schemes aren’t the only investments being targeted by HMRC in their fight against perceived avoidance; if you are facing challenges to your tax affairs please contact your usual UHY adviser to discuss your situation and see what your options are.